Nigeria’s crude oil sector recorded a steep decline in profitability in 2024, as the country’s gross profit from crude oil and gas sales fell sharply by N824.66 billion, even though total oil receipts and production increased during the year.
According to the Budget Implementation Report for Q4 2024, published by the Budget Office of the Federation, gross profit from oil and gas operations dropped to N1.08 trillion in 2024, compared to N1.90 trillion in 2023 — representing a 43.32% year-on-year decline.
This performance not only highlights the erosion of profitability across Nigeria’s oil value chain but also underscores persistent inefficiencies despite key policy reforms, including the removal of the petrol subsidy and strengthened upstream monitoring systems. The gross profit also fell short of the government’s full-year target of N1.46 trillion by N385.39 billion (26.32%), signaling weaker-than-expected returns from the sector.
Profitability Shrinks Despite Higher Revenue Collection
While gross profit declined, Nigeria’s overall oil and gas receipts increased substantially. Total oil and gas revenue before deductions rose to N15.07 trillion in 2024, up from N8.36 trillion in 2023 — a sharp 80.33% increase.
However, the composition of this revenue reveals a worrying imbalance: gross profit accounted for only 7.2% of total oil and gas income in 2024, compared to 22.8% in the previous year. This means that while the federal government is mobilizing more naira-based revenues, a much smaller proportion of those earnings is translating into pure profit.
Quarterly data reinforce this margin pressure. Gross profit came in at N365.22 billion in Q1, plunged to N161.49 billion in Q2, and then rebounded modestly to N216.58 billion and N335.69 billion in Q3 and Q4, respectively. Still, none of these quarterly results met the budget benchmark of N366.09 billion, and the deep Q2 slump left a hole that subsequent quarters could not fully close.
Oil Taxes, Royalties, and FX Gains Rise Sharply
Underneath the declining profit figures, the broader oil and gas revenue landscape was notably strong. The fiscal system captured more naira revenues from the sector, largely due to currency effects and improved enforcement.
Petroleum Profit Tax (PPT) and gas income surged by 111.56%, rising from N2.84 trillion in 2023 to N6.00 trillion in 2024. Similarly, royalty collections jumped by 179.74%, reaching N6.99 trillion compared to N2.50 trillion the previous year. The increase reflects better metering, improved compliance, and stronger oversight from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Perhaps the most dramatic growth came from exchange gains, which climbed to N4.24 trillion from N791.88 billion, representing a massive 435.93% increase. The naira’s sharp depreciation following foreign exchange reforms significantly inflated the naira value of dollar-denominated oil exports.
Other ancillary revenues also rose strongly. Gas flaring penalties reached N391.26 billion, up from N140.54 billion, while incidental oil revenues — including royalty recovery and marginal field payments — more than doubled to N347.75 billion. These gains highlight the fiscal impact of regulatory tightening and improved revenue tracking.
Rising Costs and JV Structures Erode Profits
Despite higher tax and royalty inflows, the underlying profitability of Nigeria’s oil operations deteriorated. The data suggest that escalating operating costs, legacy joint-venture (JV) obligations, and the structure of production-sharing contracts (PSCs) continue to limit the federal government’s share of oil profits.
Even though deductions for JV cash calls and federally funded upstream projects fell significantly — from N2.45 trillion in 2023 to N156.70 billion in 2024 — the gross profit margin remained thin. The report shows that items such as “Other Federally Funded Upstream Projects,” which cost N1.92 trillion in 2023, dropped to zero in 2024, while JV cash call deductions also disappeared from the books.
Net Oil Revenue Jumps, but Gains May Be Superficial
Thanks to lower deductions and favorable FX conversions, net oil revenue to the federation surged to N12.95 trillion in 2024, up from N4.82 trillion in 2023 — a rise of 168.83%. Similarly, total oil and gas revenue after the 13% derivation to oil-producing states increased by 80.35%, reaching N13.11 trillion compared to N7.27 trillion in the prior year.
However, analysts warn that these headline gains are primarily accounting-based, driven by currency revaluation effects rather than improved efficiency or productivity in the upstream sector. The gap between soaring tax receipts and collapsing profit margins highlights a structural weakness in Nigeria’s petroleum economics — where rising costs, exchange rate distortions, and governance inefficiencies continue to erode real earnings.
As 2025 unfolds, the challenge for policymakers will be translating high nominal oil revenues into sustainable fiscal gains by improving cost efficiency, renegotiating JV frameworks, and accelerating reforms to reduce leakages across the petroleum value chain.
